Questions about small business have arisen among the overwhelming majority of Canadians, most of whom know little about business operations.
In this pandemic lockdown, so many small businesses sit on the brink of closing from a two-month loss of revenues, raising the questions: Don’t they have any reserves? Why can’t they build reserves?
A simple answer might be that small business owners are human and behave in proportion to the 50 per cent of Canadians who live paycheque to paycheque.
The reasons why so many small businesses can’t withstand loss of revenues for a few months goes deeper than that.
Without revenues the ongoing expenses, rent/mortgage, utilities, loan payments become a crushing burden on owners, not to mention their living costs and the wages for any employees they still have.
True, small business can write off a lot of things as an expense, but you have to have cash coming in to benefit from the expense write-offs.
Small business profit margins, more often than not, are thin and don’t leave spare cash to build up reserves for hard times.
Profit margins are paper thin in some sectors, according to Statistics Canada. From 2000 to 2012 food and accommodations averaged a mere 2.1 per cent profit margin. Imagine profits of only 21 cents on every $10 of income!
The sector profit margins ranged from minus .01 per cent in 2000 to a high of 3.7 per cent in 2007.
Among accommodation and food businesses, the top one-quarter averaged 17.8 per cent profit margins but the bottom one-quarter averaged a loss of 3.7 per cent — 37 cents lost on every $10 of revenue.
That explains why the owner of a local outstanding restaurant once confided that retirement savings plans had been raided to keep the doors open.
About 34 per cent of small businesses had debts to service and repay in 2018, according to Statistics Canada. In 2018 small businesses across Canada average $1.40 debt for every $1 the owner had invested in the business, leaving little opportunity to build reserves.
Almost 21 per cent — 55,000 — of the 266,000 small businesses were unprofitable.
Out of the 79,000 hair salon operations in the country, about one in five are unprofitable.
Almost one in three new businesses don’t survive more than five years.
Small business owners face stiff competition from big corporations, so stiff that many find it difficult to hang on. About 7,000 file for bankruptcy every year.
These owners place their own money and their own personal psyche at risk to run a business.
The small business owners are heroes in the fabric of our lives, providing two of every three jobs and through competition, keeping big corporations honest.
We need to support our local small businesses, or one day they might not be around.
Ron Walter can be reached at firstname.lastname@example.org
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.